Indonesia Equity Strategist Puts Expiration Date on Bullish Call

(Bloomberg) -- Indonesian stocks are on a winning streak that may last only until May because of two major risks.

That’s according to John Rachmat, a strategist at PT Pinnacle Persada Investama who correctly predicted both of the nation’s previous crashes. He says the Jakarta Composite Index may rally another 9.2 percent from Wednesday’s close to 6,700 before May, adding to its 2.6 percent advance this quarter. Gains past that point are less certain, as the nation may face an abrupt end to government social spending after elections in April and the risk of a sharp increase in regulated domestic fuel prices.

“Our bullish stance actually has an expiration date, and I’m bullish until about May next year,” Rachmat said in a Bloomberg TV interview Wednesday. “I expect the government to curtail its social spending once the presidential election is over. So second-quarter GDP growth might disappoint some bulls.”

Indonesian stocks, along with those in the Philippines, have had an impressive run as the only major equity markets in Asia gaining this quarter. Rachmat turned bullish on Southeast Asia’s biggest economy after crude-oil prices plunged and U.S. midterm elections results spurred expectations that President Donald Trump would curtail budget spending and his trade-war rhetoric. Foreign funds bought $609 million of Indonesian equities in November, the best monthly inflow since April 2017.

Sean Gardiner, a strategist at Morgan Stanley, is more optimistic about Indonesia’s prospects in the longer term. He says private sector spending after the national election next year -- where President Joko Widodo is seeking re-election -- will likely fill the gap left by the cut in government spending and boost corporate-earnings growth.

Data released last month showed that Indonesia’s economic expansion held above 5 percent for a seventh straight quarter, shaking off the impact of a rout in the currency and a series of interest-rate hikes by the central bank.

“The political concerns that the market had in 2017 have faded this year, which is constructive for the outlook for equities,” Gardiner said in an interview. “Post elections, what we should see is the return of private-sector capital expenditure, which has essentially been a bit on hold for the last two years, so that is your next leg of earnings growth.”

Similar to Rachmat, Bharat Joshi, a fund manager at Aberdeen Standard Investments, recommends that investors ride Indonesia’s rally before it ends. He points out that signs of a thaw in U.S.-China trade tensions will do little to improve the outlook for the global economy.

“The recent gain from the truce between U.S. and China is more like a knee-jerk reaction, and I don’t expect that to help the overall global fundamentals going forward,” Joshi said. “I would prepare myself to cash in in six months.”

To contact the reporters on this story: Harry Suhartono in Jakarta at hsuhartono@bloomberg.net;Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Naoto Hosoda, Cecile Vannucci